The Greek referendum on Sunday the 5th of July threw up a “No” vote against austerity measures imposed by the country’s creditors. The Greek PM, Alexis Tsipras will now go back to the negotiating table with the people’s mandate of securing easier bailout conditions. The question is will the EU, IMF and ECB, the Troika of Greek lenders, agree?. There are talks of Greece splitting from the Eurozone but that could lead to more searching questions for the Eurosystem. The lenders will get back on to the negotiating table and look to put in place an agreement that is suitable for both parties and if the lenders act too tough, it will be seen as acting against the people of Greece and this will lead to protests in Portugal, Italy and Spain where people are suffering from austerity measures.
Financial markets will understandably be nervous on worries of Greek Euro exit and volatility will increase but going forward, markets will get back on track as ECB pumps in liquidity and markets could also start expecting the Fed to ease its rate hike stance if there is too much volatility.
INR is likely to open slightly negative on Monday the 6th of July but will hold steady at lower levels as global financial markets stabilize on ECB actions.
USD last week edged higher on rising risk aversion as Greek defaulted on IMF loan payment of Eur 1.6 Billion for which the repayment date had already been extended and was scheduled to be paid on 30th June. Greece after defaulting became the first developed country to default on IMF loan and subsequently failed to secure extension on its bailout program. IMF states that Greece can now only receive further funding after its arrears are cleared.
Greek Prime Minister Alexis Tsipras has gone for referendum on accepting the terms proposed by lenders for extending the country’s bailout program. The referendum was scheduled for 5th June. European leaders have said that the referendum is ultimately a vote on whether to remain in the Eurozone.
USD Index (DXY), which tracks the movement of the USD against six currencies, posted a gain of 1.47% last week. USD trimmed some of its early week gains on weak U.S. jobs data. U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 26th June rose by 10,000 to 281,000 from the previous week’s total of 271,000 and against expectations of decline of 1,000 to 272,000.
On Friday U.S. Department of Labour reported that the economy added 223,000 jobs in the month of June against the expectations of 230,000. U.S economy in the month of May has added 223,000 jobs. The report also shows that the unemployment rate has declined to 5.3% in the month of June from 5.5% in May and against the expectation of 5.4%.
U.S. Commerce Department on Thursday reported that factory orders fell by 1.0% in May against expectations of a 0.5% decline.
Euro last week depreciated by 0.47% against USD as Greece defaulted on its IMF loan repayment and failed to secure extension on its bailout program. Euro is expected to remain under pressure as reports suggest that referendum scheduled over the weekend is widely divided and European leaders have already stated that the referendum is ultimately a vote on whether to remain in the Eurozone.
Brazilian Real last week depreciated by 0.47% against the USD as Brazil’s Central Bank reduced its forex intervention by slowing down the rollover pace of currency swaps, which indicates that policy makers don’t view the recent rally favourably and does not want the Real to strengthen further in order to maintain its export competitiveness. Brazil has posted a trade surplus of USD 565 million for the week ended 21st June, compared with USD 678 million in the prior period.
Russian Ruble depreciated by 2.08% against the USD as Brent crude oil prices decline by 4.63% on weekly basis from 63.25 USD/bbl to 60.32 USD/bbl. Russia’s main export is Crude Oil & Natural Gas, which helps the country generate half of its budget revenue. Russian companies face foreign debt payments of USD 33 billion in the next three months compared to USD 21 billion payments seen in the second quarter, according to Central Bank data, which will keep the Ruble under pressure. Bank of Russia has bought USD 5.96 billion since May 13 as it seeks to boost the nation’s reserves to USD 500 billion from current levels of USD 361 billion.
Asian currencies were marginally up against the USD last week. Japanese Yen appreciated by 0.86%, Philippines Peso appreciated by 0.08%, Chinese Yuan appreciated by 0.06%, Thai Baht appreciated by 0.03% whereas Australian Dollar declined by 1.72%, South Korean Won declined by 0.58% and Indonesia Rupiah declined by 0.09%. Indian Rupee appreciated by 0.32% against USD and by 0.54% against Euro.